IMF Working Papers

Domestic Market Integration and Regional Growth: The Case of Mexico

By Felipe J. Fonseca, Samir Jahan, Irving Llamosas‐Rosas, Tomohide Mineyama, Erick Rangel‐Gonzalez, Hugo Tuesta

January 17, 2025

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Format: Chicago

Felipe J. Fonseca, Samir Jahan, Irving Llamosas‐Rosas, Tomohide Mineyama, Erick Rangel‐Gonzalez, and Hugo Tuesta. "Domestic Market Integration and Regional Growth: The Case of Mexico", IMF Working Papers 2025, 021 (2025), accessed April 3, 2025, https://doi.org/10.5089/9798400296888.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Per capita growth of the Mexican economy has lagged behind G20 peers in past decades with notable disparities between the north and south. In this paper, we build on the income convergence literature by examining the impact of domestic market integration on regional growth. To this end, we incorporate insights from the Law of One Price and construct a novel measure of the strength of domestic market integration from micro-level price data. We find that domestic market integration is strongly associated with regional growth and its spillovers, along with other structural factors such as human capital and infrastructure. Our result also indicates that neighboring states’ income level and their integration into the national economy is positively correlated with a state’s growth, suggesting cross-state spillover effects and regional clustering.

Subject: Crime, Economic integration, Human capital, Income, Labor, National accounts, Regional integration

Keywords: Banco de Mexico, Cross-state spillover effect, Domestic market integration, Europe, Global, Human capital, Income, Income convergence, Income convergence literature, LOOP parameter, Market integration, North America, Regional economic growth, Regional integration, Structural impediments

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